Exchange rate risk of a foreign currency payable is an example of
A)transaction exposure.
B)translation exposure.
C)economic exposure.
D)none of the above

Question

Quizplus · Accepted Answer

Transaction exposure refers to the risk of loss due to exchange rate fluctuations between the time a transaction is initiated and completed. In this case, the foreign currency payable creates a transaction exposure as the exchange rate can change between the time when the payment is due and when it is actually paid. Translation exposure relates to the potential impact of exchange rate fluctuations on financial statements when consolidating foreign subsidiaries with a parent company's financial statements. Economic exposure refers to the impact of exchange rate fluctuations on a company's overall competitiveness and can be caused by factors such as changes in market demand or supplier prices. Since this question specifically mentions a foreign currency payable, it is transaction exposure that is the relevant example. Therefore, the correct answer is A.

Exchange Rate Risk of a Foreign Currency Payable Is an Example